I write about the environment and economic development. I am the Executive Vice President and Managing Director of the World Resources Institute, a global, action-oriented, research organization that works with governments, companies, and civil society around the world to address six urgent sustainability challenges: food, forests, water, climate, energy, and cities. Prior to this, I worked at the World Bank, McKinsey & Company and the Bank Information Center. My writing focuses on transforming our economic system to one that is aligned with eradicating poverty and ensuring environmental sustainability. I look forward to engaging in conversation about disruptive solutions that can help move us onto a more sustainable pathway. Follow me on Twitter @ManishBapnaWRI for up-to-date insights on energy and climate change.

With growing certainty, the IPCC re-affirmed the science of climate change and human beings’ central role in it. The report, which draws on input from 800 experts from 40 countries, confirms that the world is warming faster than expected, with climate-related impacts on the rise. One top takeaway is that, according to the latest figures, the world has just 30 years until it has used up its “carbon budget,” based on carbon-intensive trajectories. If we exceed this budget, we will no longer have a good chance of staying within 2 degrees Celsius of warming.

What does this mean for business? In short, climate change is bringing greater risks and investment challenges, but also smart responses can deliver economic benefits in the transition to a low-carbon economy.

Mounting Risks: Extreme Weather, Rising Seas

Higher temperatures and more extreme weather are among the most apparent business risks. At the World Economic Forum in 2013, financial experts named climate change as one of the top three business risks.

From raging wildfires to severe flooding, extreme weather and climate change imperil operations throughout a company’s supply chain. The recent torrential floods in Colorado are a stark reminder of what our changing world looks like. The flooding took eight lives, impacted 20,000 households, and already cost more than $500 million dollars. Related damage to oil and gas facilities in Colorado is an ongoing concern for businesses and local residents.

Warmer air and melting ice are also leading to rising seas that threaten shorelines. According to the IPCC, sea levels have likely risen nearly twice as fast as previously reported. More than 1 billion people worldwide, along with many financial centers, are located in low-lying coastal communities. According to the OECD, average flood losses in major cities around the world could exceed $52 billion per year by 2050, and possibly go as high as $1 trillion without additional protection. Consider Hurricane Sandy which swamped New York City with 13-foot storm surges and delivered more than $50 billion in damage.

Water risks, of course, cut both ways with some regions facing more water scarcity than flooding. In CDP’s Global Water Report last year, more than 50 percent of companies cited “detrimental” water-related business impacts as one of the top risks, with costs as high as $200 million for some companies.

Energy Infrastructure

Climate change and extreme weather also threaten our energy and electricity infrastructure, disrupting production, delivery, and storage of energy. All of the major U.S. power sources depend on water, and decreased water availability due to changing precipitation trends and warmer water threaten operations. The U.S. has more than 280 power plants, oil and gas refineries, and energy facilities located in low-lying areas vulnerable to sea level rise and flooding, posing additional threats to our domestic energy supply. Investment and Insurance Risks

Climate-related economic disruption also compounds risks to global investments. Climate impacts are going to surface very differently depending on the location and some are highly variable thereby posing a serious risk to investors. A 2011 Mercer study warned that climate change could increase investment-portfolio risk by 10 percent over the next two decades.

The IPCC’s carbon budget has major implications for fossil fuel companies, traditionally among the highest grossing investments. These stocks underpin large portfolios and pension funds, but their value is based on proven reserves. A large portion of the reserves will likely need to remain untapped in order to keep within the carbon budget, creating the risk of rapid devaluation.

Extreme weather events are having a disruptive impact on the insurance industry. As damage from extreme events pile up and sea levels rise, insurers face the tough choice either to hike rates or refuse to provide coverage in disaster-prone areas. Some of the increased costs are being passed onto businesses and consumers. For instance, following changes in the National Flood Insurance Program, businesses and homes in high-risk flood zones will start increasing by as much as 25 percent per year, as Time magazine recently reported.

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